Legislature(1997 - 1998)

02/10/1998 01:32 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
                SB 198 - UNIFORM PARTNERSHIP ACT                               
                                                                               
CHAIRMAN LEMAN announced SB 198 as the next order of business and              
Art Peterson, Uniform Law Commissioner, to explain the bill.                   
                                                                               
MR. ART PETERSON, Uniform Law Commissioner, supported SB 198 and               
said  that Alaska is currently operating on the 1914 version of the            
Uniform Partnership Act.  MR. PETERSON said the major portion of               
the bill deals with the 1994 revision by the Uniform Laws                      
Conference. He described the limited liability portion of the bill,            
saying it was incorporated into the Uniform Partnership Act in                 
1996. Eighteen states have already enacted this revision; thirteen             
included the limited liability provisions. He said Alaska has                  
already enacted some provisions relating to limited liability that             
would be superseded by this bill. MR. PETERSON said the bill                   
contains 36 (of 42) pages devoted to this 80-year-old Act. He said             
the other six pages cover the limited liability issue. He cited one            
of the key elements of the bulk of this revision as changing the               
concept of a partnership. The old version stressed collective                  
individuals, while the new version focuses on partnership as an                
entity, which has numerous ramifications. MR. PETERSON assured the             
committee this bill will not interfere with other concepts of                  
partnership that currently exist in statute.                                   
                                                                               
MR. PETERSON concluded the committee could be comfortable in the               
knowledge that this is dealing strictly with partnerships and                  
limited liability partnerships. This bill does not deal with any               
other variety of business entity. He said if we do not update our              
laws, Alaska will be severely disadvantaged in business. He                    
explained there were a few "polishing" changes that might need to              
be dealt with before the bill moves from committee. He said these              
changes are minor and include numbering differently, which would be            
done to maintain consistency within the Alaska Statutes and                    
simplicity for interstate use. He said we would achieve a double               
benefit by having both the substance and format uniform in style               
with other states. He offered his help with any further work on                
this piece of legislation.                                                     
                                                                               
MR. JOHN MCCABE, legal counsel for the National Conference of                  
Commissioners and Uniform State Laws, testified via teleconference             
from Chicago.                                                                  
                                                                               
CHAIRMAN LEMAN asked if case law should be addressed when adopting             
an entirely new title.                                                         
                                                                               
MR. MCCABE replied that states have been acting under de facto                 
uniformity of law for the past 50 years and case law is virtually              
interchangeable from state to state. He said this Act is a                     
distillation of the experience of other states  dealing with                   
partnership.                                                                   
                                                                               
MR. PETERSON said The Act will be easily adaptable to Alaska case              
law. He concluded the Uniform Act revision is both conservative and            
evolutionary, maintaining the same concept of a partnership                    
organization yet enhancing it's utility. He stated this would not              
jeopardize case law in Alaska.                                                 
                                                                               
Number 302                                                                     
                                                                               
CHAIRMAN LEMAN asked if the apportionment of fault previously                  
established in tort law would be inconsistent with this Act.                   
                                                                               
MR. PETERSON responded that it may be necessary to amend one                   
portion of the bill to recognize the existing statute.                         
                                                                               
MR. MCCABE said he thought this was an apples and oranges                      
situation. The real question is how damages are determined in a                
personal injury action. He does not believe this Act would change              
nor conflict with any law regarding apportionment of fault or                  
liability of a partnership. He illustrated this with an example                
showing how liability might be apportioned in a personal injury                
lawsuit against a partnership. He concluded that they are dealing              
with something different.                                                      
                                                                               
MR. PETERSON asked how the revised Act's emphasis on partnership as            
an entity would affect how the partners' liability interacts. MR.              
MCCABE said the Act requires the assets of the partnership be first            
in line to satisfy a judgement. These assets must be exhausted                 
before other assets could be sought. He said this is the basic                 
difference between the 1914 and 1996 Acts. MR. MCCABE said a                   
partner who pays a judgement in larger proportion than his                     
contribution to the partnership has the ability to seek                        
contribution from other partners. MR. PETERSON asked if it would be            
necessary to amend section 306 (a) and MR. MCCABE replied it would             
not be necessary and might only confuse the issue.                             
                                                                               
MR. MCCABE said 306 (a) is a very important part of the legislation            
and could have critical impact on the nature of partnerships in                
general and he cautioned that great care be taken in any change.               
                                                                               
CHAIRMAN LEMAN thanked MR. MCCABE for his input and said that                  
details would be worked out while the bill is held in committee.               
                                                                               
MR. MCCABE concluded that most of the changes proposed in this bill            
stem from a change in the status of partners from an aggregate of              
individuals to an entity and how that affects the nature of the                
organization, the relationships between members, liabilities to                
third persons, distribution of profits and losses, and the                     
termination of the entity.  One of the relationships between                   
partners is fiduciary obligations in section 404.  Others are                  
information rights (403) and (303) statement of authority.  There              
have always been things like fiduciary obligations within                      
partnerships and they have largely been common law in character.               
The default rule in this act is that every partner is an agent for             
the partnership, but there is the ability to limit the agency                  
authority of partners.  That is done by filing a statement of                  
authority.  This can be done more consistently when you have                   
entities than when you have an aggregate.  This is very important              
for things like real estate transactions.                                      
                                                                               
One of the problems with the former aggregate notion is that every             
partner not only has partnership interests, but also specific                  
interests in partnership property and because of that                          
characteristic, it was very hard to finance real estate                        
transactions.  Because of the new entity status a partner only has             
his partnership interest; he does not have a specific interest in              
any specific property and has a right to distributions under the               
partnership.  A personal property interest becomes subject to a                
partner's own specific creditors for his specific interest.  This              
act provides for a kind of attachment procedure called the charging            
order which allow a partner's creditors to be able to get access to            
his share of the interest without upsetting the partnership as an              
entity.                                                                        
                                                                               
MR. MCCABE said he hoped to give the Committee an overview of the              
advances in this legislation which are very important in terms of              
doing business in the current business environment. There are                  
things this bill does that were not done under the old 1914 act                
like the conversion and merger provisions.  There is an integrated             
limited liability partnership consistent with RUPA.  The most                  
important part about that is that it's a full liability shield.                
The partnership entity has the liability and all of the vicarious              
liability is essentially gone.                                                 
                                                                               
MR. WILLIS KIRKPATRICK, Director, Division of Banking, Securities              
and Corporations, introduced Mr. Mike Monagle, Corporation                     
Supervisor, who would offer suggestions, not on the substance of               
the bill, but on consistencies and efficiencies with their                     
Division's operation.                                                          
                                                                               
MR. MONAGLE, Records and Licensing Supervisor, said he was focusing            
on the filing provisions.  In 1996 the Legislature added Article 6             
to the Partnership Act which created limited liability                         
partnerships.  Article 9 (in particular starting on page 31) and               
the uniform provisions, are not consistent with the original                   
Article 6 of the Liability Partnership Act.  It lacks provisions               
for what to do if a name is filed that's the same as one on file               
already. He believed most of the filing provisions could be taken              
from the existing LLP Section, Article 6, and be incorporated in               
this bill.  It would not  change the substance of the bill at all,             
but would make it more consistent with current filing practices.               
                                                                               
Fiscal impacts of statements of authority, denial, disassociation,             
dissolution for general partnerships to the agency are unknown.                
According to business license records right now there are over                 
9,500 general partnerships with business licenses.  Since the                  
partnership provision was added a year ago they have had less than             
100 LLPs filed, so they didn't feel it appropriate to put in a                 
fiscal note with any impact.  With 9,500 entities out there it's               
hard to predict the impact the bill might have, if the entities all            
decide on the same day to file.  There would obviously have to be              
some data base to track the statements and a record capture and                
retention system to store and retrieve documents as they are filed.            
                                                                               
                                                                               
CHAIRMAN LEMAN asked if they could all work together and resolve               
the details.                                                                   
                                                                               
MR. PETERSON said he thought the changes suggested by Mr. Monagle              
should work very well.                                                         
                                                                               
SENATOR KELLY said that they had been trusting Mr. Peterson for                
years on these types of bills dealing with Uniform Laws and he had             
never had any of them bounce back.                                             
                                                                               
CHAIRMAN LEMAN closed the public hearing and said he intended to               
bring this back up on Tuesday after some further work and report it            
then.                                                                          
                                                                               

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